Will Waller be sued if rate cuts are inadequate? Besant's hearing leaves suspense: Whether to prosecute depends on Trump
The top leadership of the Federal Reserve is facing new pressure to cut interest rates this year. After Fed Chairman Powell was investigated by the U.S. Department of Justice, his successor Warsh received a "warning" even before officially taking office.
On Thursday, February 5th Eastern Time, U.S. Treasury Secretary Besent stated during a Senate Banking Committee hearing that if the Fed chairman nominee Kevin Warsh fails to lower interest rates as President Trump wishes, whether he will be prosecuted “depends on the President.”
As one of the Senate Banking Committee members who review the Fed chairman nominee, Democratic Senator Elizabeth Warren asked Besent at the hearing to promise that Warsh would not be prosecuted or investigated for failing to set interest rates according to the president’s wishes. Besent refused to make such a promise, saying that Trump’s previous comments about prosecuting Warsh were a "joke."
On Wednesday, Trump stated that if Warsh dares to raise rates, he will not nominate him as Fed chairman, saying he believes Warsh understands his preference for rate cuts, “I think that's what he wants to do anyway.”
These statements have intensified market concerns about the independence of the Federal Reserve. Nearly four weeks ago, the Justice Department launched a criminal investigation into Powell, focusing on a $2.5 billion cost overrun in the Fed headquarters renovation project and whether Powell lied to Congress about project details. Subsequently, Powell issued a statement saying that the investigation was because the Fed’s rate decisions did not “follow the President's preferences.” Trump also stated on Monday that there would be a “thorough investigation” into Powell.
Besent Refuses to Promise Protection for Warsh
At Thursday’s Senate Banking Committee hearing, Warren posed what she considered an "easy question" to Besent: Could he promise that Warsh would not be prosecuted or investigated for failing to cut rates to the extent demanded by Trump?
“That depends on the President,” Besent responded, shaking his head.
Warren’s question referenced weekend media reports. According to reports, Trump joked at a dinner in Washington that if Warsh could not lower interest rates, he would be prosecuted.
After Besent said it depends on the president, Warren pressed, saying this should be a simple question, easy to answer, “If it was just a joke, why not just say so?”
Besent replied to her: “It was a joke. He (Trump) also joked about you—Senator (Warren), which made everyone laugh out loud, continuously.”
As Trump’s aide in searching for Powell’s successor, Besent stated at the hearing that Warsh is a "very qualified" candidate.
Trump Sends Clear Signal for Rate Cuts
In a media interview on Wednesday, Trump explicitly stated that if Warsh expressed a willingness to raise rates, he would not receive the Fed chairman nomination. Trump said: “If he comes in and says 'I want to raise rates,' he's not going to get the job, no way.”
Trump said at the time that the Fed would "undoubtedly" cut rates, because "our interest rates are too high," and now "our country is rich again."
When asked if Warsh understood Trump’s desire for him to cut rates, Trump responded, “I think he understands, but I think that’s what he wanted to do anyway.”
Trump stated that he “in theory” believes the Fed is an independent institution, but also called himself a “smart man” whose economic forecasts should be taken into account.
Warsh served as a Fed governor from 2006 to 2011, always vigilant about inflation and often supporting higher interest rates during his term. But in 2025, Warsh changed his tune, echoing Trump’s view that rates could be substantially lowered, and said in October of the same year that the Fed’s work "was contrary to the president’s policy.”
Warsh’s shift in stance is seen as a key factor in his obtaining Trump’s nomination. On Friday, January 30th, the day Trump announced Warsh’s nomination, Trump stated at the White House that Warsh would cut rates without needing pressure from the White House. Trump said Warsh had not personally promised him rate cuts, but "certainly wants to cut rates."
Federal Reserve Independence Faces Test
Trump's remarks may become a central issue in Warsh's nomination confirmation process.
After the Department of Justice subpoenaed the Fed regarding Powell’s comments on the renovation project, key senators—including Senate Banking Committee Republican Thom Tillis—warned that Trump’s Fed nominees would face stricter scrutiny.
Tillis posted on social media last Friday that Warsh is “a qualified nominee with deep understanding of monetary policy,” but stated he would oppose the nomination until the Fed investigation is resolved.
On the Banking Committee that handles Fed nominations, Republicans hold 13 seats, a slight majority over Democrats' 11 seats. If all Democratic members vote against the nomination, Tillis’s opposition could prevent Warsh from being approved.
In his statement confirming the investigation, Powell said it was a disguised attack on the Fed’s independent ability to set monetary policy. Officials in the Trump administration denied this intent, but since taking office, Trump has continuously pressured Powell to cut rates quickly and sharply.
On Wednesday, Trump downplayed threats against Powell, saying “lots of people say lots of things,” and reiterated his criticism of the Fed renovation project, saying of Powell, “This guy spent too much money.”
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